The increasing global focus on environmental investments raises concern about the relationship between a firm’s cost of capital and its corporate environmental (ESG) performance. However, there is little research on the topic. The previous literature on corporate finance has found that capital constraints play a role in companies’ investment decisions. This article contributes to the existing corporate finance literature by looking at the impact of the cost of corporate debt and the degree of leverage on corporate environmental performance (CEP).
Christoph Klein, CFA, CEFA, Dipl. Kaufm. Summary We constructed a discriminant function that includes an ESG factor. It has a higher explanatory power in discriminating between industrial companies’ good and poor credit qualities than similar models that don’t include an ESG factor. While empirical credit quality research has focused on “classic” credit ratios in the past, we find that adding …
Green bonds, once characterized as novelty investments, are now an integral part of institutional investors’ core fixed-income portfolios and represent the entire investment chain, ranging from corporate to municipal bonds and sovereign bonds.
Fixed-income securities that use their proceeds toward the financing of ESG-aligned projects have proven particularly attractive among investors. Their volume has been increasing exponentially since their inception by the European Investment Bank (EIB) in 2007 and following their expansion by the International Finance Corporation (IFC) in 2010.
For this special issue, we looked for articles that explore the extent to which sustainability-linked and ESG-aligned fixed-income securities can support the mainstreaming of responsible investment principles across the financial sector.
While forest and “green” bonds are traded today, our findings demonstrate that the return from an integrated portfolio that contains forest wood products (direct use) and ecosystem services (indirect uses) provides an investor with more investment choices.
This paper introduces a sustainable forestry bond composed of wood products and ecosystem services and investigates the project-based financial performance, such as NPV, associated with this bond. . . . The paper tackles an interesting and relevant issue in today’s business environment.
Whether green bonds deliver a cheaper cost of capital to issuers than vanilla bonds has been a contentious issue since the start of the green bond market. Among green bond market participants, perspectives on a greenium rest on market positions. On the issuer side, green bond issuers claim to be beyond, and others claim to be at par. As the market has developed, commentary on the investment side has changed. Some investors are arguing that they are investing in green bonds at par with vanilla bonds, while others say that they give financial preference to green bonds.
The price of a green bond depends on the rates of return of projects as well as on the ratings by issuers. That is why it is important to understand what projects are financed using green bonds and who the issuers are.
The global transition toward a low-carbon and climate-resilient economy requires common, science-based frameworks against which governments, the private sector, and individuals can determine whether activities contribute meaningfully to that transition. Developing a standardized language for determining what activities contribute to climate change mitigation and adaptation is a primary focus of international policymaking efforts to meet the Paris Agreement targets.
The definition and taxonomy of projects; the use and management of raised funds and proceeds; evaluation and certification; and information disclosure are the four key pillars that constitute the standard framework of green and climate bonds.